2024 (10) TMI 323 - AT - Central Excise

Compounded lavy scheme - Penalty u/r 26 of the Central Excise Rules 2002 - alleged contravention committed by SMFPPL of operating the Pan masala Packaging Machines differently from that declared by SMFPPL under Rule 6 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008 - based merely on statements of various persons - cross-examination of statements denied - violation of principles of natural justice - HELD THAT - The entire case of the department is based merely on statements of various persons however, the cross-examination was denied by the Commissioner despite specific request to grant such cross-examination was made. Hence, no reliance can be placed on such statements as laid down in the following judgments that, as provided in Section 9D of the Central Excise Act 1944, a Statement of any person recorded under the said Act, shall be relevant in adjudication only when such person is examined in the adjudication proceedings. The ground on which the Commissioner has imposed penalty on the Appellants does not satisfy the ingredients of Rule 26 of the Central Excise Rules 2002. It is an admitted fact that the Appellants were not made parties to Show Cause notice dated 9-9-2011, which proposed confiscation of the goods and imposition of penalty on SMFPPL. The Appellants were made party only to Show Cause Notice dated 31-8-2012 which demanded duty from SMFPPL by interpreting the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008. This Show Cause Notice dated 31-8-2012 proposed imposition of penalty on the Appellants under Rule 26 of the Central Excise Rules 2002. As held by this Hon ble Tribunal in Meenakshi Food Products (P) Ltd v CCE 2019 (7) TMI 904 - CESTAT AHMEDABAD , the said Rule 26 can apply only to a person who is involved in the clearance of goods by different ways enumerated under Rule 26, whereas in the present case, duty demand had been made on interpretation of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008. There is no evidence and finding of the Appellants role in acquiring, possessing or being concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner dealing with exciseble goods with knowledge or reason to believe that the same were liable to confiscation under the Central Excise Act 1944 or the Central Excise Rules 2002. Therefore, imposition of penalty under Rule 26 is liable to be set aside - impugned Order imposing penalty upon the appellants, J M Joshi and Sachin J Joshi cannot be sustained. Therefore penalty imposed upon the appellants under Rule 26 is hereby set aside. As regards, the appellant namely Vinayak Kashiram Sawant, the Director of SMFPPL, it appears from the records that he looked after Silvassa plant of SMFPPL, further Dilip Jani, Director of SMFPPL ,Gandhinagar has admitted that he was looking after production and clearance of goods at Gandhinagar factory. As such, it is found that he was not concerned with the activities of SMFPPL, Gandhinagar. In that view, penalty imposed upon him under Rule 26 is hereby set aside. The appeals of JM Joshi, Sachin J Joshi and Vinayak Kashiram Sawant are allowed and appeal filed by Balraj Mourya is partly allowed.

Summary

Issues Involved:

1. Sustainability of penalties imposed on appellants under Rule 26 of the Central Excise Rules 2002 for allegedly aiding and abetting evasion of central excise duty.
2. Validity of the denial of cross-examination of witnesses whose statements were relied upon by the department.
3. Applicability of Rule 26 of the Central Excise Rules 2002 in cases involving compounded levy under Section 3A and related rules.

Issue-wise Detailed Analysis:

1. Sustainability of Penalties under Rule 26:

The primary issue was whether penalties imposed on the appellants under Rule 26 of the Central Excise Rules 2002 were sustainable. The appellants, J.M. Joshi and Sachin J. Joshi, were alleged to have aided and abetted SMFPPL in evading central excise duty. However, the tribunal found no evidence of their involvement in any act of evasion. The tribunal noted that J.M. Joshi had resigned as a director in 2000, and Sachin J. Joshi was never a director. The statements relied upon by the department did not implicate them in any violation. The tribunal emphasized that mere ownership of shares by J.M. Joshi could not justify a penalty under Rule 26, which requires involvement in the clearance of goods. The tribunal concluded that the penalties imposed on J.M. Joshi and Sachin J. Joshi were not sustainable and set them aside.

For Vinayak Kashiram Sawant, the tribunal found that he was responsible for the Silvassa plant and not involved with the Gandhinagar factory's activities, leading to the setting aside of his penalty. In the case of Balraj Maurya, although he was responsible for central excise-related activities, the tribunal noted he acted under the instructions of Dilip Jani and was not a beneficiary of any evasion. Consequently, his penalty was reduced to Rs. 10,00,000.

2. Denial of Cross-Examination:

The tribunal addressed the appellants' contention that the denial of cross-examination of witnesses whose statements were relied upon was unjustified. The tribunal highlighted that statements recorded under the Central Excise Act are relevant only when the person is examined in adjudication proceedings, as per Section 9D of the Act. The tribunal cited precedents, including Basudev Garg v. CC and Andaman Timber Industries v. CC, to support the view that reliance on such statements without cross-examination is improper. The tribunal found that the department's case relied heavily on statements without granting the appellants the opportunity for cross-examination, rendering the findings against them unsustainable.

3. Applicability of Rule 26 in Compounded Levy Cases:

The tribunal noted arguments regarding the applicability of Rule 26 in cases involving compounded levy under Section 3A and related rules. Although the tribunal did not make a specific finding on this issue, it acknowledged that Rule 26 typically applies to individuals involved in the clearance of goods. In this case, the duty demand was based on the interpretation of the Pan Masala Packing Machines Rules, not on the clearance of goods. The tribunal found no evidence of the appellants' involvement in activities that would make them liable under Rule 26, leading to the conclusion that the penalties were not justified.

Conclusion:

The tribunal allowed the appeals of J.M. Joshi, Sachin J. Joshi, and Vinayak Kashiram Sawant, setting aside the penalties imposed on them. Balraj Maurya's appeal was partly allowed, with his penalty reduced to Rs. 10,00,000. The tribunal's decision emphasized the lack of evidence against the appellants, the improper denial of cross-examination, and the inapplicability of Rule 26 in the context of the case.